Article

South Africa’s agricultural sector was the only shining light in the second quarter of this year. The sector’s gross value-added expanded by 15.1% q/q on a seasonally adjusted and annualised basis following an expansion of 27.8% q/q in the first quarter. This is, in part, because most of the sector was classified as essential and didn’t close down during the strict lockdown period, whose effect extended to the second quarter. Most importantly it is due to the fact that this is a recovery year in agricultural output across all subsectors (field crops, horticulture and livestock) following prolonged periods of drought, and a surge in exports (supported by the weak exchange rate). These were also the key drivers of the expansion in the first quarter of the year.

To reiterate a point we made in the previous notes; from a field crops output perspective, South Africa harvested its second-largest grains harvest on record. Within this category, maize, sunflower seed, and soybeans produced in the current season (2019/20 production year) are up 38% y/y, 16% y/y and 8% y/y, estimated at 15.5 million tonnes, 785 910 tonnes and 1.3 million tonnes respectively. Moreover, South Africa’s sugar cane production is set to increase by 1% y/y to 19.4 million tonnes. In the case of horticulture, South Africa has generally had a good fruit harvest this year, with the citrus industry recently noting a 13% y/y increase in available supplies for export markets in 2020. There is also a broad recovery in the production of deciduous fruit with apple and pear production up by 5% y/y and 1% y/y respectively in 2020. There is also a general recovery in the livestock industry although this particular subsector was not as robust as other subsectors. The latter is also evident as slaughtering activity softened when the country went into strict lockdown at the end of March. With that said, the livestock sector activity will probably recover in the third quarter, depending on the widespread opening of restaurants and the ability of consumers to afford animal products.

Unfortunately, however, this did very little to change the overall GDP picture of South Africa as primary agriculture is a small share of the economy. The overall economy contracted by 51% q/q on a seasonally adjusted and annualised basis, largely reflecting the effects of lockdown restrictions put in place to slow the spread of the pandemic that negatively affected productivity across various sectors. Overall, we are of the view that South Africa’s agricultural gross value-added could expand by at least an average of 10% y/y this year (compared to a contraction of 6.9% y/y in 2019).